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Trichet reiterates inflation warning

Jean-Claude Trichet, the president of the European Central Bank (ECB), has signalled that he has not changed his view that eurozone interest rates could rise next month.

Trichet, who was addressing the European Parliament’s economic committee today, said he had “nothing to add” to the statement that he made to the same effect after the last ECB governing council meeting on 3 March.

At that meeting the ECB decided that, for the 22nd consecutive month, the bank’s main refinancing rate would stay at the historic low of 1%.

He told MEPs today: “It is crucial at this stage to avoid the recent rise in inflation translating into broad-based second-round effects, for instance via price-setting or higher wages.

“Such effects would give rise to broad-based inflationary pressures over the medium term.”

Fielding questions from MEPs, Trichet also told the Parliament that he backed the “pact for the euro” that leaders of eurozone member states agreed on 12 March.

However, he said that he was concerned that the measures were agreed between heads of governments rather than going through the normal EU legislative process.

“I’m convinced the pact is going in the right direction,” he said. “A lot of things in it are very good and as far as the governments concerned go, they’re bringing in measures we’ve advocated, so I’m not going to now say they are wrong.

But he added, “There is an inter-governmental aspect in the euro pact that we think should be mainstreamed into the normal way that European institutions function.”

Trichet also reiterated his support for bank levies and investor bail-ins to ensure that the financial sector bears the burden of possible future bank crises. He said levies would be an effective “complementary tool in the set of instruments aiming at increasing the loss absorbency of systemically important banks”.

He said that the ECB was ready to help the European Commission make plans for the future EU crisis management framework, which could include bank levies.

On plans for a financial transaction tax, which is currently being considered by the Commission, Trichet said that it needed to be global in scope in order to ensure a “level playing field”.

He said: “Our position is that it would be a good idea, if we were to have such a tax, for it to be introduced worldwide, otherwise there will be a difference in the way that transactions carried out in Europe are handled, compared with the rest of the world, not just in the US but in Asia and in emerging and advanced countries, and there’s a problem there.”